Hacker News Reader

Comment by pille | Hacker News Reader

> there are laws saying banks cannot receive state aid > every rule is meant to be broken if the situation warrants it

Why did anyone bother with the rule in the first place then? Wasn't this exactly the kind of situation it was supposed to cover? It's not like an Italian financial crisis was off the radar when this rule got written.

> Does that really mean we should let a massive bank (or multiple banks) go bankrupt?

We've let pretty much everything else go bankrupt in the past eight years. Maybe we should try a it with a bank or two?

> Given the global financial system is so interconnected, only a fool...

That's exactly what the banks said last time to get their bailouts. I think only a fool would believe them again.

(edit: quotes/formatting)

View on HN

1. What works for (relatively) small Cypriot banks will probably not work for larger system banks. The bail in rules worked well in part because the Cypriot banks held a lot of foreign, Russian deposits. If Deutsche goes bust.. winter is coming.

2. Bankruptcy will lead to local deposit funds having to reimburse €100,000 per person, per bank. Which will ultimately be paid for by the taxpayer. It might actually be cheaper for the taxpayer to just save the bank.

At least in Belgium, the government actually got quite a good return on the emergency funds they lent to the banks during the financial crisis. So we're looking at a possible return vs a certain loss.

I'm not saying all banks need to be bailed out, but it's only prudent to keep the option on the table if required. The world would be a different place if post Lehman governments would have let banks collapse.

  It might actually be cheaper for the taxpayer to just
  save the bank.

So, there are a few theories about why the financial crash happened:

Theory 1: The [banking system / market / bankers paid seven-figure salaries] actually had little to no understanding of what they were doing. Complicated derivative products and credit default swaps were mispriced because nobody really understands the maths and their risk models are all wrong.

This suggests, if we want to prevent the problem from recurring, the legislative intervention should be to either ban complex financial products or require much higher capital reserves for banks gambling on them.

Theory 2: The [banking system / market / bankers paid seven-figure salaries] had accurate models and understood the risks. They just decided they could go to the roulette table and put a trillion dollars on red, and the government would bail them out if the ball landed on black.

This suggests, if we want to prevent the problem from recurring, the legislative intervention should be to make bailouts radically less attractive for the people who benefit from such gambling. This could mean not providing bailouts, so banks that gamble and lose go bankrupt; or could involve some of the many other disincentives legislators have at their disposal.

If you follow this theory, and you adopt the policy that there will be no bailouts, you have to let the bank fail to prove to people that you really mean it.

1. ... If Deutsche goes bust.. winter is coming.

How, exactly? And if that's the case, isn't it already the failure that we're letting DB hold the world hostage?

The world would be a different place if post Lehman governments would have let banks collapse

Why does the solution to this scary, foreboding fate always revolve around making sure the bankers stay fabulously wealthy?

>If Deutsche goes bust.. winter is coming.

For 90% of the world (ahaha), winter has already been here since 2008. It's about time the banks were exposed to the weather, I'd say.

Reply on news.ycombinator.com